As Elon Musk dumps more shares, Tesla remains bellwether of post-pandemic recovery

It will remain an excessively volatile stock amid ongoing global energy crisis

Nov 20, 2021

THE recent market plunge for American electric-vehicle (EV) giant Tesla has rattled the stock market, revealing the company's role as the bellwether of the post-pandemic recovery.

It's been a dramatic week for the California-based company, with Tesla's share price down by over 20 per cent from its peak in early November at one stage, dipping into bear-market territory earlier this week.

Tesla sits at the nexus of several trends in the US economy, becoming as representative of the industrial age as General Electric - the conglomerate that recently decided to de-agglomerate - was of the previous one.

The shift from internal combustion to EVs could be the most significant economic history event of the early 21st century, and the company Elon Musk built is the clear global leader in terms of sales and innovation.

If there is any logic to the 10-fold increase in Tesla's stock since March 2020 even as its profit rose modestly, it's this impression that Musk has somehow achieved his goal of becoming the Henry Ford of the EV industry.

To fully realise this dream, however, he will have to fend off Ford's descendants and other formidable competitors.

"It seems like they are years away from catching up to Tesla, as the old auto manufacturers try to play catch-up here," said Edward Moya, a senior market analyst at foreign-exchange brokerage Oanda Group. "Some of these newer companies like Lucid Motor or Rivian Automotive are just trying to get their feet wet."

Tesla is also dead centre of another defining feature of the post-pandemic economy: day trading.

Over the last month alone, the share price has risen by almost 25 per cent, smashing through the US$1 trillion market cap ceiling while also enduring a lightning-fast bear-market sell-off of over 20 per cent.

In March this year, hundreds of thousands of people piled into "meme" stocks, often using facile rationales, based on anecdotal impressions of video-game economics, case-count outlooks or car-buying trends rather than earnings reports.

As a result, people think nothing of GameStop, a company worth about US$20 billion, moving by 10 per cent or even as much as 20 per cent in a day.

Tesla's volatility is not quite as extreme, but it is comparable. The company's shares have seen 21 moves of 5 per cent or more this year so far, according to data from Bloomberg.

Electric-car makers are arguably the hottest of the meme stocks of late. Rivian Automotive, which has not sold a single one of its electric pick-ups, went public with a valuation of more than US$65 billion on Nov 10, triple Google's value at its 2004 launch.

Lucid Motor, which expects to sell close to 600 cars by the end of the year, has surpassed Ford Motor - which will sell more than 1 million vehicles - in market valuation.

Oanda's Moya, however, thinks market sentiment and US Treasury yields are a bigger threat to Tesla in the next couple of years than any of these competitors.

The latest Tesla sell-off was triggered by Musk's stance on another contemporary theme - taxing the mega rich. In his impulsive style, he polled his 63 million Twitter followers on Nov 6 and asked if he should sell 10 per cent of his stake in Tesla to pay capital-gains taxes.

The poll appeared to be a provocative response to a proposal from US Senator Ron Wyden to target billionaires with a new tax on unrealised capital gains.

"Wyden is right. The decision to tax the wealthy and corporations should be left to all Americans, not just Musk's Twitter followers," said a spokesperson for the Patriotic Millionaires, an advocacy group for higher taxes on the wealthy.

Shares of Tesla sold off in response to Musk's tweet. Less than a fortnight later, Musk had dumped more than US$8.8 billion of his shares, although some analysts have wondered just how the stock has managed to stay so resilient amid this turbulence.

"A large part of the retail community of investors has an almost religious faith in Tesla. It is going to remain an excessively volatile stock as we continue to grapple with a global energy crisis," said Moya.

Even if Tesla is the future of the US stock market, however, it is unlikely to be a quiet future.

Musk's tendency to work out his corporate strategy and life planning on Twitter is something that has engendered day traders' adoration of Tesla as a stock.

But it also means that Tesla is always just "one tweet away" from a massive move in either direction.